What Is KYC?
KYC (Know Your Customer) is the process through which a company collects information about a customer’s:
- identity (identification and verification);
- income;
- financial profile: what they do and what type and volume of transactions to expect.
KYC answers the question: “Who is this person?” Learn more: how customers are verified during an AML check.
What Is AML?
AML (Anti-Money Laundering) uses the information gathered through KYC to assess the customer’s initial risk level, meaning how exposed the customer is to money laundering and terrorist financing risks. From there, the AML system works continuously:
- screening against sanctions lists;
- analysing the origin of crypto and transaction history;
- monitoring transactions;
- applying enhanced due diligence (EDD) where needed;
- reporting suspicious activity to the Financial Monitoring Service.
AML answers the question: “How risky are this customer and this specific transaction?”
Low-Risk Customer, High-Risk Transaction
This is where the main question is answered. Customer risk and the risk of a specific transaction are two different things.
“We may know a customer very well, and from an AML perspective they may be considered low-risk, yet a specific crypto transaction they make may be linked to high-risk factors.”
— Tamar Ratianidze
This means the customer may have received coins:
- from high-risk individuals;
- from a “tainted” wallet: one linked to stolen coins, dark markets, mixers, sanctions or terrorist financing.
Blockchain analytics will reliably detect such links at the time of the transaction, even if the customer was unaware of them. The transaction may then be held for further review, but this does not automatically mean the customer has done anything wrong.
Know Who You Receive Crypto From
As Tamar points out, it is very important for customers to know who they are receiving crypto transfers from. In practice:
- avoid accepting crypto from unknown or unverified parties;
- be especially careful with P2P deals;
- keep proof of your source of funds (exchange statements, contracts, invoices);
- if a transaction is held, respond calmly to the platform’s request and provide the information asked for.
Frequently Asked Questions
Are KYC and AML the same thing?
No. KYC collects information about the customer; AML uses it to assess risk and monitor activity continuously. KYC is a prerequisite for AML.
Why was my transaction held if I’ve passed verification?
Verification confirms your identity, but a specific transaction may be linked to high-risk factors, for example if the coins came from a tainted wallet.
What is a “tainted” wallet?
A wallet linked to illicit activity: stolen coins, dark markets, mixers, sanctions or terrorist financing.
LC HUB: AML/CFT Consulting and Training
LC HUB (Legal & Compliance Hub) helps companies build effective KYC and AML processes:
- designing KYC procedures and customer risk assessment methodology;
- implementing transaction monitoring and wallet risk assessment systems;
- building AML/CFT frameworks and ensuring NBG compliance;
- certified AML training, including a VASP-focused masterclass.
📞 Contact us: +995 551 51 93 39